Deepening Wind Turbine Concerns Trigger Over 30% Drop in Siemens Energy Shares

Siemens Energy shares experienced a 34% drop by Friday afternoon in Europe following the company’s abandonment of its profit forecast. Siemens Energy also issued a warning, stating that costly problems in its wind turbine unit could persist for a number of years.

The company, which emerged from the spinoff of German conglomerate Siemens’ former gas and power division, announced on Thursday that a review of its subsidiary Siemens Gamesa had revealed a “substantial increase in failure rates of wind turbine components.”

The Siemens Gamesa board has initiated an “extended technical review” to enhance product quality. Siemens Energy acknowledged that this would result in “significantly higher costs” than previously estimated, now exceeding 1 billion euros ($1.09 billion).

In a statement, Siemens Energy said, “It is too early to provide an exact estimate of the potential financial impact of the quality issues and to determine their effect on our business plans. However, based on our initial assessment, the potential magnitude of the impact leads us to withdraw the profit assumptions for Siemens Gamesa and, consequently, the profit guidance for Siemens Energy Group for fiscal year 2023.”

Since its full takeover late last year, Siemens Gamesa has been a source of trouble for its parent company.

Siemens Energy CEO Christian Bruch stated during a call with journalists on Friday that there had been a significant concealment of issues at Siemens Gamesa. He emphasized that the quality problems were even more serious than anticipated, as reported by Reuters.

Nicholas Green, head of European capital goods at Alliance Bernstein, stated that Siemens Energy could potentially recover from this decline. However, the extent of the problems has astonished the market.

He said, “With a service order book of 17 billion euros, which includes the provision of services for installed wind farms and turbines for several years, discovering that a few components are not functioning as planned and may require replacement creates a significant liability.”

Siemens Energy estimates that component failures may be occurring in 15% to 30% of its installed fleet of turbines. Green noted that there is still uncertainty regarding the extent of their liability.

“Hopefully, when they provide an update at the beginning of August, they will have a more precise estimation of the costs and obligations ahead. Nevertheless, the unexpected magnitude of the hit has shaken the market,” he added.